By Saeed Azhar, Noor Zainab Hussain and Manya Saini
(Reuters) -Wells Fargo’s first-quarter profit fell 7 percent, beating analysts’ forecasts, as the company paid more to hold customer deposits as borrower demand declined.
Its stock slipped 2.1% after oscillating between gains and losses. The volatility reflects investors’ uncertainty about how much banks will take in interest payments in the coming months.
Wells Fargo’s net interest income (NII) — or the difference between what it earns on loans and what it pays for deposits — could fall 7% to 9% this year, he said. -he indicates. NII slipped 8% to $12.23 billion in the first quarter.
“It’s certainly difficult these days to predict NII, given all the volatility we’ve seen across a lot of different data points, as well as some of the uncertainty that exists around how our customers are going to behave,” Finance Chief Michael Santomassimo told reporters on a call.
The forecast is “conservative” and Wells Fargo could still generate more revenue if interest rates remain high for longer, CFRA analyst Alexander Yokum wrote in a note. He upgraded the stock from a buy rating to a hold rating.
Wells Fargo’s adjusted profit of $1.26 per share beat analysts’ estimates of $1.11, according to LSEG data, helped by the corporate and investment bank’s revenue, which rose nearly of 5%.
Bank of America analyst Ebrahim Poonawala reiterated his buy rating on the stock, saying the results and outlook support a “constructive view.”
The changing interest rate outlook in the United States is an important factor that will determine future bank profits. U.S. consumer prices rose more than expected in March, leading financial markets to anticipate that the Federal Reserve would delay cutting rates until September.
Rising rates boosted profits for lenders, who generated more money from interest payments, but that benefit diminished in the first quarter of 2024.
The NII forecast is based on the expectation of three rate cuts this year, CFO Santomassimo told analysts.
Rising interest rates have also made it more expensive for banks, prompting them to pay more to hold deposits from customers seeking higher returns.
Tighter monetary policy could also dampen borrower demand and dampen economic activity, including trading on Wall Street.
Wells Fargo also paid $284 million into a Federal Deposit Insurance Corp. fund that was emptied last year after three regional lenders collapsed.
Average loans fell $20.6 billion, or 2 percent, year over year, due to declines in most loan categories, the bank said.
Rival Citigroup reported lower profit as it spent more on severance and set aside money to replenish the government’s deposit insurance fund, while JPMorgan Chase forecast 2024 NII did not meet analysts’ expectations.
Wells Fargo reduced its provisions for credit losses on office loans by $76 million to $2.4 billion in the first quarter.
“Our portfolio is still very healthy,” Santomassimo said. The bank isn’t too concerned about weakness in multifamily properties and it doesn’t have substantial exposure to rent-stabilized properties, he added.
A surprise fourth-quarter loss at New York Community Bank fueled industry concerns about weakness in commercial real estate that has expanded beyond offices to multifamily properties with more than five units.
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Credit card loans were a bright spot, while auto loans suffered a sharp decline of 23% during the quarter.
The bank operates with a $1.95 trillion asset cap that prevents it from growing until regulators believe it has resolved problems stemming from a fake accounts scandal. As investors speculated about a possible lifting of growth limits, executives continued to assert that the decision was in the hands of regulators.
The lender still has eight consent orders open after the U.S. Office of the Comptroller of the Currency (OCC) ended a 2016 sanction in February.
“We reached an important milestone in the first quarter when the OCC announced the termination of a consent order it issued in 2016 regarding improper business practices,” CEO Charlie Scharf said in a statement.
“The remaining risk and controls work remains our top priority and we will not be satisfied until all work is complete,” he added.
Scharf became CEO in 2019, the fourth person to lead Wells Fargo since the scandal emerged. He worked to turn around the lender, cutting costs and exiting operations after it racked up billions of dollars in lawsuits and regulatory fines.
Overall, noninterest expenses rose 5% in the quarter, partly due to the cost of replenishing a government deposit insurance fund, the bank said.
Wells Fargo’s stock has climbed about 14.8% since the start of the year, compared with a 7.1% gain for the S&P 500 Banks Index, which tracks big lenders.
(Reporting by Noor Zainab Hussain and Manya Saini in Bangalore and Saeed Azhar in New York; editing by Lananh Nguyen, Sriraj Kalluvila and Nick Zieminski)
News Source : finance.yahoo.com
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